408. Telegram From the Ambassador in Chile (Lyon) to the Department of State1
579. [Here follows the first part of this telegram containing the Embassy’s response to the questions raised in Document 405.]
Deptel 489. Possible United States assistance to assure continuance stabilization program should be considered from two angles.
- First is government’s potential need for assistance on budget deficit caused by fall copper prices coupled with unforeseen expenditures such as unbudgeted sugar subsidy. If no other alternatives practicable deficit would be met by printing press financing. Potential wage increase pressure, which will increase in geometric proportion with further price rises, also has important bearing this problem. So far GOC consideration form United States help might take limited to balance of payments loans mentioned Part I this telegram. Exchange would be sold for pesos to permit continuance imports at rate anticipated prior copper price drop at same time yielding additional customs revenues. Although assistance this nature may become essential before end of year, Embassy fears if it came now it might relieve pressure on government to such extent that fight for increased progressive taxes and government economy would not be vigorously pursued. For this reason Embassy prefers some short-term [Page 829] remedy such as in last resort suggested copper company advance exchange sales which would keep heat on government.
- Second aspect of situation presents much greater problem. It involves growing discontent, crystalized by last week’s events, among working classes, with price rises uncompensated by wage adjustments. Embassy believes it is essential to long-range maintenance of program that its success be generally evident before the 1958 presidential elections and that public by that time accept it as beneficial to country at least, if not to all individuals. Otherwise new government more apt to be wrong kind, but in any case will find itself politically obliged reverse many policies and inflation will start again.
It is difficult task to get Ibáñez to recognize danger to program of its not enjoying broad public support. He has consistently rejected suggestions for badly needed improvement in public relations aspect, and in conversation yesterday with Klein–Saks, he revealed total lack comprehension basis for popular discontent. Nevertheless, Embassy believes it may well be psychologically essential that government start immediately some large scale dramatic undertaking which will tend to compensate worker for squeeze he is undergoing, or at least divert his attention from it.
Embassy actively considering various possible programs which might be quickly accepted by Chilean Government and which could have dramatic and helpful impact on most discontented sector populace. Large scale housing project seems likely have largest number beneficial effects, including elimination slums, reemployment in construction industry, and reduction discontent among sector populace most susceptible Communist influence and anti-stabilization program attitudes. Klein–Saks enthusiastic about idea and not concerned possible inflationary effect. USOM presently has very small self-help program underway. Prompt technical assistance and financing for immediate major expansion would be essential requirement. We recognize numerous problems involved such undertaking but believe this type effort is the kind most needed. Although it might be difficult, and subsequent investigation might prove it undesirable to change distribution PL 480 loan funds, fact program for their expenditure still awaiting congressional approval presents possible source financing.
Because lack ability average family feed itself properly under present economic stresses believed to be greater problem than generally realized, we are exploring possibility increasing availability food at lowest possible prices through expanded cooperative movement, stressing trade union outlets. Would appreciate Department’s comments on possibility some Title III PL 480 contributions for such a program.
[Page 830]All above without benefit views Carter Klein–Saks, who due tomorrow, presumably with latest views US Government, Klein–Saks and Puga.
- Source: Department of State, Central Files, 825.10/11–1257. Confidential.↩